It’s a well-known fact that many organizations outsource their industrial and manufacturing operations to countries across the globe for lower labor and production costs.
The era of hyper-globalization brought about the creation of global value chains and high interdependencies between businesses and suppliers, interconnecting the world’s economies and supply chains.
However, the emergence of the coronavirus exposed the vulnerabilities of such interconnectivity, with lockdowns, closed borders and slowed productions causing worldwide supply shortages.
The unprecedented disruption has caused manufacturers to rethink their strategy for post-COVID-19 business continuity and growth, from the near-term actions of accelerating adoptions of digital technologies to shifting their operations for a longer-term solution.
INDUSTRY REINVENTION
Over 75% of the world’s global manufacturing outputs were impacted by the pandemic, and throughout the past months, it was evident that digitally-matured organizations have greater resilience in enduring such crises.
Unfortunately, not all manufacturers were technologically prepared for the effects of the outbreak, but many took the chance to quickly ‘adapt and adopt’.
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Enhancing Data Infrastructure
From additive manufacturing to extended realities, Industrial Digital Technologies (IDT) were used in full force during the pandemic, proving how these smart technologies can bring resilient productivity to manufacturers in times of crisis. Among the IDTs, data infrastructure in particular is seen as a strategic asset.
“The COVID-19 crisis has made having access to reliable, real-time data an absolute necessity for coordinating the right medical response. In the near future, data will become an even more strategic resource across multiple facets of business and society.”
– What Will Manufacturing’s New Normal Be After COVID-19?
IndustryWeek
In fact, in a recent survey, Management Events discovered that over 50% of manufacturers have placed data science and analytics as their topmost technology adoption for 2021 while almost all the surveyed manufacturing executives agreed that data-driven digital business models are imperative for long-term survival.
The greater emphasis on data also means a higher adoption of data connectivity, which include the deployments and accelerations of 5G networks, Industrial IoT, cloud platforms, and cybersecurity.
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Intelligent Automation & Robotics
With physical-distancing measures still ongoing for the foreseeable future, automation and robotics are key necessities in the post-coronavirus manufacturing industry. However, the machines of the future are expected to be highly adaptable and reprogrammable through artificial intelligence (AI) and software.
“Rather than having a very complex hardware manufacturing,” Maurizo Cremonini, head of marketing at COMAU, commented in an interview, “the trend is going to very lean factories where the robotized and automatized cells are managed by software, loading different recipes as needed so they can easily modify the production process.”
Suppliers such as Bright Machines, a software and robotics company, offer highly roboticized machinery, combining software, machine learning, and adaptive robotics for a more responsive production line.
“[The] key to unlocking the promise of intelligent automation,” Amar Hanspal, CEO of Bright Machines explained in an article, “is the connection of individual machines to an AI-powered software layer that configures, monitors and manages machines and operations, creating programmable and autonomous factories. We call this approach Software-Defined Manufacturing.”
According to Research and Market’s report on COVID-19’s impact on the smart manufacturing market, a positive growth in collaborative robots is still forecasted for 2020 albeit lesser than the pre-virus prediction while Fortune Business Insights expects the global industrial robots market to reach an estimate of $66.5 billion by 2027.
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Improving Digital Capabilities
Over the past months, under-resourced manufacturing teams faced great challenges in solving COVID-19-related issues.
With necessity driving determination and innovation, the manufacturing industry found itself rapidly changing, adopting technology and enhancing digital capabilities to solve issues of distance, remote visibility and labor shortage.
There is no doubt that the industry will see five years of innovation in the next 18 months as manufacturers move to boost efficiency, cost-effectiveness, optimization and competitiveness, or risk falling behind their counterparts.
SHIFTING OUT OF CHINA
According to an article by the Oxford Business Group, representatives of the world’s largest economies are “publicly encouraging companies to shift their manufacturing operations out of China as part of plans to diversify global industry.”
But it’s important to note that the relocation is not wholly dependent on the pandemic.
Even before the outbreak, businesses were contemplating relocating or expanding their factories and manufacturing operations due to reasons that included trade wars, high tariffs, rising costs, and other pressures. COVID-19 only hastened the move.
However, experts relate that shifting out of China may not be as easy as it seems.
“Most companies cannot afford to consider a wholesale relocation of their factories out of China or replace their Chinese sourcing vendors,” as mentioned by multidisciplinary professional services firm, Dezan Shira & Associates.
“This is because supply chain infrastructure takes time to establish and China is at the heart of most of the world’s production, sourcing, and procurement needs.”
Instead, it seems that businesses are adopting a ‘China+1” strategy, where China remains as the main source of operations with diversification in other countries.
“Ultimately where we’re heading to is more fragmented manufacturing — many small factories of the world.”
– Gerry Mattios, expert vice president of Bain & Company, Singapore,
China May Become One Of Many Hubs As Companies Diversify Manufacturing After Coronavirus Shock
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Spreading Throughout Southeast Asia
Based on Kearney’s annual Reshoring Index, the report shows that U.S. manufacturing imports are shifting away from China to other Asian low-cost countries (LCCs), with Vietnam taking the lead.
Out of the $31 billion in U.S. imports from Asian LCCs, Vietnam absorbed 46% of the imports due to the multiple benefits the country offers to manufacturers, such as:
- Access to the ASEAN free trade area,
- International trade pacts with Asia, EU and U.S.,
- Major developments in industrial infrastructure, and
- Lower labor costs than China.
Apple has already stated that the organization is seeking to relocate 30% of their AirPods productions to Vietnam, while Google and Microsoft are shifting parts of their manufacturing lines to Vietnam and Thailand.
In spite of the increased relocation to Vietnam, Kearney’s report noted that “not all of Vietnam’s gains represent a true relocation of production from China to Vietnam” as part of the shifts may be “temporary tactics to avoid tariffs.”
Other Asian countries that are benefiting from the diversification or actively courting manufacturers include the Philippines, India, Thailand, Indonesia and Malaysia.
India, for instance, is enticing global smartphone manufacturers to set up factories with its new incentive program and a 462,000-hectare land pool for 10 sectors. Meanwhile, in the Philippines, a defence industrial complex has been created to encourage manufacturing plants from defence firms.
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Moving Closer To Home
Countries such as Japan, the U.S. and U.K. as well as in the Europe continent are already underway with their plans for a local or regional manufacturing network.
In April of 2020, Japanese Prime Minister, Shinzo Abe, unveiled a massive $992 billion stimulus package, whereby $2.2 billion have been allocated to help local organizations shift their manufacturing plants back to Japan.
The U.S., on the other hand, had previously shown increasing manufacturing shifts to Mexico in 2019, according to the Kearney report. The finding is further strengthened by the 2020 International Trade and Trends in Mexico Survey Report by Foley & Lardner LLP, whereby respondents from the manufacturing, automotive and technology industries plan to move their business to Mexico within the next one to five years.
“80% of those considering or planning a move to Mexico from another international location intend to do so within the next two years [while] two-thirds of respondents [not doing business internationally] are planning to begin operating in Mexico within the next year.”
– U.S. Executives Enthusiastic About Expanding Business in Mexico,
Forbes
For the U.K., the head of economics at the British Chamber of Commerce, Suren Thiru, commented to CNBC in May 2020 that “some U.K. businesses were already shortening their supply chains after coronavirus-related disruptions had affected operations.”
As for Europe, the sentiment of local productions is expressed in DigitalEurope’s paper on relaunching manufacturing in a post-COVID-19 world. The paper recommended increasing additive manufacturing technologies to substitute globally sourced parts with parts that are locally produced.
Meanwhile, Morocco, Tunisia and Egypt are hailed as competitive manufacturing hubs for European businesses seeking nearshore alternatives.
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Reshoring and Microfactories
For manufacturers seeking to reshore their facilities, the adoption of digital innovation is extremely crucial.
“A successful reshoring strategy must be coupled with a digital manufacturing strategy. If the current pandemic has demonstrated anything, it is the power of digital technologies to keep companies productive, even in the worst of times.”
– Paul Haimes, VP of Business Development & Technical Sales at PTC,
Manufacturers should ‘reshore’ and reinvent themselves post-COVID
As countries increase their reshoring efforts, the question that consistently arises is ‘Are there enough digitally-skilled workers?’
To quote Cherie Wong, the general manager of Amazon Web Services (AWS) IoT analytics services, “There is a shortage of expertise. Skilled people in developed countries don’t think about careers in manufacturing.”
“But now there is a trend towards reshoring,” she spoke at an analyst meeting by Siemens Digital Industries, “For that, we have to be thinking about microfactories.”
Microfactories, as explained by research and analysis firm, FutureBridge, are small-to-medium factories that are highly automated and technologically advanced, capable of a wide range of processes.
Through these agile and digitized microfactories, manufacturers are able to call upon local contract facilities for cost-effective productions and for handling mass customization and ‘markets of one’.
“You can automate processes without building in rigidity,” stated Alastair Orchard, digital enterprise vice president at Siemens, in an article by The Institution of Engineering and Technology. “You can’t easily personalize products halfway around the world, you need to run those lines onshore. With local production, you can scale down to a lot size of one.”
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Overcoming Challenges
Although onshoring, nearshoring and offshoring from China are trending topics among manufacturers, business experts predict that the shift might be easier said than done.
From the availability of specialized skills and technologies to the breaking of a highly complex network of interdependencies and ‘deep-tiering’ of supply chains, manufacturers are keeping these concerns in mind as they seek to build a more sustainable and resilient value chain.
In the meantime, it’s expected that China will remain as the main manufacturing center while companies continue with a China+1 strategy and move towards industrial diversification.
MANUFACTURING RESILIENCE
The pandemic laid bare facts to manufacturers that they cannot stand idly by the traditional models of old and be content with existing global value chains.
With a potentially volatile demand environment over the horizon, manufacturers have to make plans for agile and flexible manufacturing processes while constantly reassessing and innovating their business models for the future.
“The resilience of [an] industry and its ability to perform and adjust to shocks hinges on its diverse, dynamic, innovative and collaborative capacity, which emerges from its industrial commons.”
United Nations Industrial Development Organization
There are still other areas that have yet to be covered – workforce empowerment and upskilling, circular manufacturing models, and strategic inventory reserves – but it’s obvious that the post-coronavirus manufacturing industry has to take many factors into consideration in order to start a new era in resilience, sustainability and self-sufficiency.
